Budget 2017: Getting personal with tax

Union Budget announced by the Finance Minister on February 1, 2017, proposed to reduce the tax rate for taxable income less than Rs 5 lakh from current 10 per cent to 5 per cent benefiting individuals (resident/non-resident) below the age of 60 years and individuals (resident/non-resident) above the age of 60 years and below the age of 80 years. Rebate, under section 87A of the Income-Tax Act 1961, is proposed to be reduced from Rs 5,000 to Rs 2,500. It has also been proposed to restrict such rebate to resident individuals whose total income does not exceed Rs 3.5 lakh (earlier Rs 5 lakh).

The net benefit arising to an individual with taxable income of Rs 3.5 lakh and Rs 5 lakh as a result of the above proposals is Rs 2,575 and Rs 7,725 respectively.

Section 2(42A) of the Act is proposed to be amended to reduce the holding period from existing 36 months to 24 months in case of immovable property being land and building or both to quality as long term capital asset.

In order to promote digital transactions and to encourage small unorganised business to accept digital payments, the government has proposed to amend section 44AD of the Act to reduce the existing rate of deemed total income of 8 per cent to 6 per cent in respect of turnover received by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account in respect of the previous year. Existing rate of deemed total income of 8 per cent shall continue to apply in respect of total turnover or gross receipts received by any other mode.

The existing provisions provide that payment from NPS Trust to an employee on closure of his account or opting out shall be exempt up to 40 per cent of total amount payable to him. In order to provide relief to an employee who is a subscriber of NPS, it is proposed to provide exemption for partial withdrawal not exceeding 25 per cent of the contribution made by an employee.

As per the existing provision of the Act, withholding tax obligation on rental payments arises only in case of individuals or HUF who are liable to tax audit. It is proposed that individual or HUF not liable for tax audit will now be required to withhold tax at the rate of 5 per cent, if the rent exceeds Rs 50,000 per month or part of month on payment of rent. Also, TAN will not be required to be obtained. Further, tax would be required to be withheld only once during the previous year in the last instalment payable for the year. In addition to the above, it is proposed that under section 206AA of the Act, maximum deduction shall not exceed the rent payable for the last month of the previous year or the last month of tenancy.

Existing provisions gave the assessee an option to consider Fair Market Value (FMV) as on April 1, 1981, for capital assets acquired before the said date. It has been proposed to shift the base to April 1, 2001. Accordingly, assessees have an option to consider cost or FMV as on April 1, 2001, as their cost in respect of assets acquired on or before April 1, 2001. Further, for the purpose of computing indexed cost of acquisition, 2001 shall be considered as the base year.

It is proposed to provide exemption under section 54EC of the Act on investment of long term capital gains in any bond redeemable after three years that shall be notified by the central government. This will be in addition to investments in NHAI bonds and RECL bonds, wherein exemption was allowed on investment up to Rs 50 lakh.

In order to bring parity between an individual who is an employee and an individual who is self employed, the government has also proposed to amend section 80CCD of the Act to increase the upper limit of 10 per cent of Gross Total Income (GTI) to 20 per cent in case of individual who is self-employed.